The government and export industries

Bluescope is expected to announce closures at Port Kembla and Hastings today. These closures are a flow on from the mining boom and the associated high Australian dollar exchange rate making it harder for non-mining exporters to compete. As usual there are calls for the government to ‘do something‘. But what should it do?

One obvious way for the federal government to ‘do something’ is to avoid artificially preventing exports. The best example I know of this is in the education sector. Education has been one of Australia’s biggest export earners, but the high Australian dollar has made it less competitive. In contrast, a devalued US dollar has increased their exports of education services and their international education sales are booming.

However, the high Australian dollar is clearly not the only factor. Canada, another country with a ‘commodity currency’, has not found the relatively high value of their dollar to be a barrier to increasing education exports. As reported here, Canadian education exports are booming. While the Australian dollar has appreciated against the Canadian dollar over the past year, the Canadian dollar has itself appreciated against other currencies like the US dollar. So there seems to be more at work than just the exchange rate. (You can find the exchange rate history here.)

A major reason for the drop in Australian education exports is the federal government’s visa policies. The government changed these rules to prevent exploitation of immigration rules – which of course are also set by the federal government. So to solve one problem (that it created) the federal government has so restricted student visas that it is undermining a major Australian non-mining export industry. The irony of course is that a major beneficiary of education exports is the Australian government who owns/funds almost all our Universities.

What should be done? Well here is a simple example from across the Tasman. The solution makes it easier for students going to ‘high quality’ education providers to get visas. It is a long way from a perfect solution but at least it helps avoid strangling a major export industry in bureaucratic redtape.

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7 Responses to "The government and export industries"

On education I thought the issue was that what was being sold was often residency not education. I’m not sure how the changes to PR rules impacted people coming to study high-end big 8 uni degrees. Although I’m not completely on top of how all the rules changed.

I agree that some tweaking in the visa setup to favour higher quality eductation could be desirable. Although from an export point of view wouldn’t it be better to favour the highest margin per visa offerings?

On steel works I don’t see how any sort of policy can really save them from Chinese competition. Economies of scale, rock-bottom wages and super-cheap loans from state owned banks. This happened to all the industrial towns in the UK back in the 80s.

The only way to prop up the industry is to quarantine some fraction of the iron ore and coking coal exports and insist they are processed locally.

Or maybe tax favourably value-add industries that are linked to our primary industries? Even then you have to be profitable before the tax status matters.

I can’t see what this proposal has to to with the Dutch Disease implications of a dramatically appreciated Australian dollar that is annihilating jobs at Port Kembla. The move to stricter visa regulations is obviously to stop non-genuine students in Australia who seek to use an Australian education policy as abases for residency. One specific suggestion might be a tax on mineral and other booming exports that effectively reduces their price at home. Trade economist Ronald Findlay argued the case for such a tax in Melbourne recently. This would reduce the costs of major inputs (coal, iron ore) to firms such as Bluescope. There is a strong presumptive case for free trade but one that needs to be carefully thought through if the annihilation of the last remnants of our manufacturing sector are caused by a (possibly) non-persisting terms of trade shock. And there are reasons for supposing the shock will be moderated in the medium term if the Chinese and Indian economies slow and as new sources of raw material supply come on stream.

Tim Hartford’s talk reminds me of a tenant of conservative beliefs. Conservatives believe that social systems are too complicated to change radically. They believe that advocates of radical social reform are hopelessly over-optimistic about their ability to understand the consequences of large incremental change to social and political arrangements — because of the complexity of social arrangements.
Moreover, conservatives believe that the social order is the result of hundreds of years of trial and error. Therefore, they argue, radical social change – even moderate social change – exhibits hubris and a rejection of trial and error. Conservatives advocate incremental (or no) change in the social and political order using just the reasoning advocated by Tim Hartford.